Privatization The Chicago Way

The pitfalls of privatizing government assets and services are quite apparent to anyone who hasn't been living under a rock, but the temptation to keep trying it in hopes of getting a better result never seems to be in short supply. The latest rendition in Chicago is causing real heartburn for those who expect transparency in accounting for how public dollars are spent. Add to former Chicago Mayor's great failure in privatizing the city's parking meter assets his crafty plan that circumvented state laws governing the privatization of public assets by transferring control of a valued publicly-owned tourism asset, Navy Pier, to a nonprofit entity. The Sun-Times' Tim Novak learns that the state's public records law doesn't apply to the nonprofit entity despite the fact that taxpayer-backed bonds have provided $115 million to renovate the nearly one-hundred year-old pier.

Navy Pier, dubbed as Illinois' biggest tourist attraction, had been under the control of the Metropolitan Pier and Exposition Authority, commonly referred to as McPier, which also oversees McCormick Place, the country's largest convention center. In 2010, the legislature decided that both McCormick Place and Navy Pier would be better off under private operators and passed legislation accomplishing that aim over the objections of Gov. Pat Quinn, who was concerned that the private operators would be able to skirt state purchasing rules. The Democratic-controlled legislature's primary concern in seeking to privatize Chicago's principal convention and tourist venue was to side-step the unions it complained were driving up costs too much. Through a competitive bidding process, McPier awarded the management of McCormick Place to SMG. The authority took a different tact in privatizing Navy Pier, which allowed it to skirt the public bidding process altogether required under the enabling privatization law.

McPier entered into a 3-year, one dollar a year contract with a newly-created nonprofit corporation, Navy Pier, Inc., ("NPI") to operate Navy Pier. The authority entertained no competitive bids at the time in determining to whom the management agreement would be awarded, arguing that because it was turning control over a nonprofit rather than a private company there was no true privatization of the publicly-owned facility. At the time, McPier's CEO, Jim Reilly, claimed the deal would get the Pier "out of politics" with "a lot less patronage."

According to tax returns NPI files with the IRS, it has at least four employees earning more than the $180,000 the state's governor is paid. One of the higher paid employees is the son of a long-time political advisor to Daley, Tim Degnan. Its CEO receives salary and benefit valued at nearly $400,000. It has paid out bonuses of as much as $37,500 to top executives. In 2012, it reported $42.6 million in revenues and expenditures of nearly $40 million, including $2.8 million for salaries.

Notwithstanding Reilly's claims that NPI's control of Navy Pier would be less political, the Sun-Times found that former Mayor Richard Daley's political hands were all over the deal. Daley's former chief of staff, John Schmidt, incorporated Navy Pier, Inc. just months before Daley left office. NPI's board included Daley's daughter, his former campaign chairman, two of his former chiefs of staff, his former top city attorney and civic leaders Daley counted among his campaign contributors and supporters. NPI refuses to respond to requests about who it employs or how much they are paid, arguing that its records are exempt from state law since it's not a governmental agency, a position backed by Attorney General Lisa Madigan's office.

The Attorney General's office said the documents sought could simply be acquired by requesting them from McPier, but the authority's CEO claims it doesn't have any of NPI's records, including information about any contracts awarded to minority and women-owned businesses as required by the $115 million in taxpayer dollars spent on renovating the facility. The Better Government Association is now filing a lawsuit in the Cook County courts to seek a court order forcing McPier and NPI to produce the documents that have been requested, arguing that the nonprofit was set up solely for the purpose of shielding Navy Pier's operations from public view.

Similarly, the Sun-Times finds that Choose Chicago, the city's convention and tourism bureau, refuses to produce any of its records in response to public records requests, a position supported by Attorney General Lisa Madigan's office. Half of Choose Chicago's funding comes from the City of Chicago and the McPier Authority, which rely on a variety of taxes to fund grants made to Choose Chicago. Choose Chicago has a payroll of $8.4 million, including the $412,000 it pays to Don Welsh as its CEO. Welsh formerly served as CEO of Visit Indy before taking the job in Chicago. Choose Chicago is also not subject to public audit requirements despite the millions in taxpayer dollars it receives annually.

Chicago must have decided to take a page out of Indianapolis' downtown mafia's playbook. They've been using nonprofits like Indianapolis Downtown, Inc., the Greater Indianapolis Progress Committee, Visit Indy, etc. to divert tens of millions of public tax dollars in order to shield how the money is being spent from the public's view. At least someone in the media in Chicago is complaining about it. The Indianapolis Star, the Indianapolis Business Journal and the four local TV stations all support these non-transparent moves to keep the public in the dark on the expenditure of large sums of public funds for the exclusive benefit of a handful of elitist insiders.